After falling 186 points on Tuesday, trader’s nervously eyed the APD employment report this morning.
As a result, the market got off to a shaky start today, since according to ADP the U.S. private sector shed 298,000 jobs in August. That was considerably higher than the 213,000 jobs economists were expecting, weighing on the markets.
Of course, the “big report” from the Labor Department comes later in the week. On Friday morning the government figures are expected to show “only” 225,000 jobs lost in August.
In the meantime, here’s the skinny on today’s report.
From Bloomberg by Timothy R. Homan and Shobhana Chandra entitled: U.S. Economy: Companies Cut More Jobs Than Forecast In August
“U.S. companies cut more jobs than forecast in August and boosted their workers’ productivity the most since 2003 in the second quarter, signaling employers are seeking to cut costs further even as the economy stabilizes.
A survey by ADP Employer Services showed businesses reduced payrolls by 298,000 after a 360,000 decline in July. The Labor Department in Washington said productivity, a measure of employee output per hour, rose at a 6.6 percent annual rate in the three months through June.
With labor costs declining and employment continuing to deteriorate, today’s reports buttress the case for the Federal Reserve to complete its plans to buy $1.75 billion of bonds and forego raising interest rates until next year. Slack in the job market helps reduce any inflationary pressures stemming from the central bank’s record liquidity injections.
“Inflation risks are minimal and the key issue they should focus on is spurring growth,” said Michael Moran, chief economist at Daiwa Securities America Inc. in New York, who accurately forecast the gain in productivity. “There’s a turn under way in the labor market, though it’s a very slow turn.”
Stock-index futures dropped after the ADP report’s release, and the Standard & Poor’s 500 Index opened lower; it was up 0.2 percent to 999.66 at 11:33 a.m. in New York. Treasuries erased losses, leaving yields on benchmark 10-year notes little changed from late yesterday at 3.35 percent.
The ADP report, forecast to show a decline of 250,000 jobs, underscores the danger that the consumer spending that accounts for 70 percent of the economy may be slow to gain traction in coming months.
The report showed a drop of 152,000 workers in goods- producing industries including manufacturing and construction, while service providers cut 146,000 workers. Financial firms trimmed jobs by 19,000, ADP said, the 21st consecutive monthly drop for the industry.
“Considering the severity of the recession and uncertainty over the strength and sustainability of the recovery, the labor market’s recuperation will be slow and painful,” said Ryan Sweet, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania, which forecast a drop of 290,000.”
That makes Friday’s jobs number the latest “most important jobs number of all time”.
I think it will come in on the heavy side.
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